Last month, while I was wandering through a second-hand store, my eyes caught a glimpse of a book titled “Free: The Future of a Radical Price” by Chris Anderson. Out of curiosity, I picked it up, thinking it might offer some intriguing insights, especially since I’ve been toying with the idea of starting my own small business – someday.
The concept of making a profit by giving away products or services for free seemed counterintuitive, yet here was a whole book dedicated to it.
After reading it, I found the ideas not only interesting but potentially transformative for startups and small businesses looking to make their mark in a crowded market.
Former editor-in-chief of Wired magazine, Anderson invites us to rethink traditional business models and consider the power of free in attracting customers and building a sustainable business. Let’s detail this inspiring strategy!
The Paradox of Free
The concept of the whole book suggests that companies can actually generate substantial revenue by offering their products or services without charge.
I know, it’s a counterintuitive strategy but it could be crucial for entrepreneurs and business owners looking to make an impact in their industries.
This approach leverages the vast potential of the digital economy, where the cost of distributing additional digital copies is virtually zero, for instance:
Musicians who distribute their songs online for free reach a wider audience, significantly increasing their fan base. This, in turn, can lead to higher attendance at concerts and increased sales of premium merchandise or deluxe editions of their music.
Video games which operate on a freemium model (understand where the game is free to play but certain enhancements or levels require payment) have seen substantial growth. These games attract a vast number of players, a percentage of whom are willing to pay for an enhanced gaming experience.
The effectiveness of the free strategy is further evidenced by the growth of online activities and the corresponding decline in costs. As digital services become cheaper to offer, businesses can afford to give away more for free, creating a cycle that benefits both the provider and the consumer. This approach not only generates direct revenue from a subset of users but also builds brand loyalty and a broader user base that can be monetized in various ways.
The most successful models of free business capitalize on indirect routes to profit. Advertising is a classic example, where free content attracts users, and their attention is then sold to advertisers. Another model involves using free marketing services to build a reputation and a community, which can then be leveraged to sell related products or services.
Giving something away can be more profitable than selling it.
Morality of Free
Free is often difficult to grasp because it is not a thing but an absence of a thing.
Within a family, a neighborhood, or even a workplace, goods and services are still measured in generosity, trust, kindness, reputation, and fair exchange: generally, money is not needed.
For Kropotkin (1902): “In giving something, we do not exchange money but satisfaction. This satisfaction has its roots in community, mutual aid, and support.” Understand, help has the virtue of strengthening itself: it encourages others to give as well.
Psychology of Free: too good to be true?
Our feelings towards free are relative, not absolute.
When something that used to cost money becomes free, we tend to think its quality has decreased. But if it was never paid for, do we view it differently?
In most cases, a mere kroner (or euro, dollar… an apparently insignificant price) can halt the momentum of the vast majority of consumers. It makes us think before choosing, which tends to deter us from proceeding.
Our brain sends out an alarm signal every time it’s faced with a price. But if the price is 0, the flag never goes up, and the decision becomes easier. We are lazy and prefer not to think when we can avoid it; we choose what requires the least reasoning.
Many potential customers are deterred by the decision-making and payment process (they basically don’t want to take out their credit card). Additionally, the revenue from micropayments is thin. So, we lose on both counts. Charging a price, therefore, creates a psychological barrier that most people will refrain from crossing. Free, on the other hand, cuts through this decision, increasing the number of people who will try what we offer.
For a creator seeking attention more than income, free is justified. The demand you get at a price of zero is several times higher than what you get at a very low price; demand jumps non-linearly. The most difficult thing for a new company is not to go from 5 to 50 million dollars but to get any payment from its users. The highest barrier is the one that separates the free service from the service that costs a penny. From the consumer’s perspective, there is a huge difference between cheap and free.
Give away a product, and it can spread like an epidemic. Charge one penny, and your business is completely different, and you have to fight for every customer.
Zero is an emotional trigger, a source of irrational excitement. When comparing two products and one of them is free, it causes confusion in the consumer’s mind. Most transactions have pros and cons, but when something is FREE, we forget the latter. FREE brings such an emotional charge that what is offered seems to have much more value than it actually does.
Because humans inherently fear loss. The real asset of FREE is linked to this fear: when choosing a FREE item, there is no visible possibility of losing. Suppose we choose the NOT FREE item, there is a risk of making the wrong choice and therefore losing. That’s why, when given the choice, we choose FREE.
However, free comes with negative consequences that must be addressed:
- Skepticism: in cultures or demographics where there’s a strong belief that “you get what you pay for”, something offered for free might be perceived as low quality or as having a hidden catch. Businesses utilizing free strategies must navigate these perceptions carefully, ensuring that their offers genuinely add value to the consumer experience without undermining trust.
- Shame: a consumer may feel bad and ashamed to communicate about a subscription to a free offer (risk of appearing stingy for others / may be judged negatively by others).
- Disrespect: we often disrespect all the things we don’t pay for (nor thinking about the way we consume them), often leading to thoughtless consumption and waste.
- Generation gap: Younger individuals – who’ve grown up in the digital era where access to free content is abundant – might see free as a baseline expectation rather than an added bonus.
For small businesses, embracing the concept of free can be a game-changer. In a marketplace where visibility and customer acquisition are perennial challenges, offering something for free can dramatically lower the barriers to entry for potential customers. It’s a strategy that can lead to increased user engagement, foster brand loyalty, and ultimately, create a community of customers who value your offerings enough to pay for enhanced services or products.
Yet, the book delves into a much wider array of topics and nuances around the concept of free, which I will address in future posts(not to be too long or heavy with this one).
See ya 🙂
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